Zimbabwe blow billions of 'fictional' dollars

As Zimbabwe's clueless government continues to blow billions of "fictional" dollars that it does not have - on trinkets and its bloated workforce - experts have issued a fresh warning that the country is heading for an economic disaster of epic proportions, akin to the 2008 meltdown.

This comes as President Robert Mugabe's administration announced on Monday that it would pay its workers $180 million in unbudgeted financing for 2016 bonuses to stem a planned strike, as the panicking ruling Zanu PF intensifies its disastrous populist policies ahead of next year's make-or-break national elections.

Economic experts who spoke to the Daily News yesterday said the government was "playing with fire" by continuing to spend money it did not have - through its rising, reckless and unsustainable domestic borrowings, which had seen its local debt ballooning from a manageable $300 million in 2012 to a whopping $4 billion by October 2016, worsening the country's liquidity crisis in the process.

At the weekend, the Daily News' sister paper, the Daily News on Sunday, also reported that there was renewed fear among both businesspeople and ordinary Zimbabweans that the country's economy could soon slip back to the disastrous lows of 2008 - as shortages of cash persist despite the introduction of bond notes which are rapidly losing value against the United States dollar.

Economists have also warned of a fresh round of sharp rises in the prices of basic goods, including foodstuffs - as the US dollar continues to vanish from the market, leading political analysts to worry about renewed civil unrest in the country.

Former Finance minister Tendai Biti said yesterday that Zimbabwe was heading for an economic calamity which would see the government formally reintroducing the Zimbabwe dollar which has been decommissioned.

"They are already printing what we call Zollars, an amphibious creature which is half Zimdollar and half US dollar that is reflected in treasury bills and bond notes which have no cover.

"This is reflected in unfinanced RTGS (real-time gross settlement) and debit card transactions. We have created hot air, and as a result broad money supply, M3, must be frightening. It must be close to 60 percent of GDP. We are heading straight to hyperinflation.

"Zimbabweans must prepare for a long winter of despair. It's in Zanu PF's DNA to print money and just spend it as if there is no tomorrow. The flood gates are open and will drown us. It's just a question of time now," Biti said.

He said the government was printing treasury bills (TBs) - short-term promissory notes issued by the government to raise funds - at a frightening pace.

"If you add up all the TB figures, they amount close to $4bn, which is almost the entire national budget. We are back in a new regime of economic insanity. This is Chinamanomics," he said, taking a dig at Finance minister Patrick Chinamasa.

Meanwhile, researchers at Exotix Partners say they have seen a co-relation between the time the government started injecting TBs into the market and the disappearance of hard cash.

They also refute official assertions that the printing of money ended in 2008 when the country switched to a multi currency system, saying it was happening through the TBs.

On its part, equities group IH Securities has cautioned about a turbulent year ahead, on the back of the government's failure to contain its ballooning expenditure.

"Confidence in the financial sector is faltering . . . On the surface, the financial sector has remained somewhat resilient … despite clear headwinds in the form of growing exposure to TBs, uncertainty around bond notes and a decline in quality borrowers under the economic circumstances.

"We are wary of the financial sector as balance sheets become heavily exposed to TBs and as cash balances begin to lean towards bond notes relative to hard forex," IH said in its 2017 equity strategy paper.

However, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya is adamant that the value of bond notes is not tumbling - asserting to the Daily News on Sunday at the weekend that the surrogate currency was still trading at par with the dollar.

He also dismissed strongly recent State media reports that the under-pressure central bank would soon introduce $10 and $20 bond notes to ease the country's severe cash shortages - claims which fuelled suspicion that Mangudya was about to flood the market with the surrogate currency.

But long-suffering Zimbabweans who spoke to the Daily News on Sunday said bond notes were "definitely devaluing", adding that many shops around the country were also beginning to reject them.

Economic expert Prosper Chitambara said bond notes were losing their value while US dollars were disappearing from the market because importers needed greenbacks to replenish their stock - and given the scarcity of the dollar and the demand for it, a premium was now placed on the American currency, with an inevitable parallel market emerging.

"What is causing all this is that the bond note is not internationally tradeable. If you are a business that relies on imports, you can't use bond notes to import, which has affected their value.

"Value in this case is determined by market forces of supply and demand," said.

Another economist, Witness Chinyama, said the economy was now dominated by bond notes, which the market perceived as "bad money".

"The good money (dollars) has been driven out of circulation by the bad money, as bond notes can't be used to import goods.

"While at official level the currencies are still at 1 to 1, for the importer, the bond note is weaker. The dollar is now the reserve currency," Chinyama said.

But Mangudya vehemently denied that the value of bond notes had tumbled.

"Have you seen twin-pricing in OK (supermarket) or other major outlets? We can't talk of backdoor shops . . . Go to the formal market, there is no weakening of value there . . . we can't talk of out-layers," he said.

Biti accused the government of effectively running "a Ponzi scheme" - a form of fraud.

"You have four sources of the Ponzi scheme. First is dollar bank balances sitting in the bank, with depositors unable to get their money. Depositors have been transacting through RTGS and debit cards.

"Wherever you use debit cards, it's just transactional. We are circulating hot money, and it's huge. We need an audit of how much money has been created through the circulation of hot money.

"The second challenge is money being deposited into exporters' accounts. The RBZ is crediting accounts with RTGS balances. The real money is not coming out. That money is being recycled and rechannelled.

"Government has been borrowing, issuing treasury bills and using them as a source of currency. Take the RBZ debt of $1,5bn - all of it was paid by treasury bills.

"We now have billions worth of treasury bills, some of which will be redeemed as late as 2028.  Meanwhile, importers have queues ranging between one month and six months. And applications for import permits are not being processed.

"We need a change in government to restore trust. We need to start producing . . . factories, mines have to start working. We need a whole raft of reforms which Zanu PF is not capable of," Biti said.

Many economists and businesses have been pushing for the adoption of the South African rand to avoid the country plunging into an economic crisis.

Mugabe has also backed Zimbabwe's greater use of the South African currency when he spoke in an interview with the ZBC to mark his 93rd birthday a fortnight ago.

The nonagenarian has also since said that bond notes are a temporary measure to mitigate cash shortages in the country.